Urban Law Annual ; Journal of Urban and Contemporary Law

Volume 22

January 1981

Tax Increment Financing: “Rational Basis” or“Revenue Shell”?

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Recommended CitationTax Increment Financing: “Rational Basis” or “Revenue Shell”?, 22 Urb. L. Ann. 283 (1981)Available at: https://openscholarship.wustl.edu/law_urbanlaw/vol22/iss1/10

TAX INCREMENT FINANCING: "RATIONALBASIS" OR "REVENUE SHELL GAME"?

Local governments cannot adequately finance urban redevelop-ment through federal funds' or traditional municipal financial re-sources. 2 Consequently, many municipalities3 use Tax IncrementFinancing (TIF)4 to pay for the redevelopment of blighted5 urban

1. Tax Increment Financing (TIF) began as a method to raise the local share offederal matching grants. See Davidson, Tax Increment Financing as a Toolfor Com-munity Redevelopment, 56 U. DET. J. URB. L. 405 (1979). TIF has gained in impor-tance now that federal funds have become virtually nonexistent for urban renewal,particularly for commercial and industrial rehabilitation. Hulkonen, Tax IncrementFinancing: .4 Total Community Approach to Economic Development, 9 A.I.D.C. J. 50(1974).

2. Customarily, American cities have used the following methods to pay for pub-lic works: "pay as they go" by utilizing current tax revenues; general obligationbonds; revenue bonds; special assessments; and hybrid bonds. See E. MCQUILLIN, 15MUNICIPAL CORPORATIONS §§ 43.128-137 (3rd ed. 1959). Such traditional sources offinancing have become seriously overextended. Factors contributing to the likelihoodthat many state and local governments will encounter serious financing problemswithin the next decade include: current deficiencies in state-local services, the de-mand for increased quality of these services, and the lack of careful planning andcontrol of pension benefits for municipal employees. See generally, J. MAXWELL & J.ARONSON, FINANCING STATE AND LOCAL GOVERNMENTS 251-252 (3rd ed. 1977).

3. In Minnesota, ninety-one projects used TIF between 1969 and 1977. Davidson,supra note I, at 407. Two hundred and fifty cities used TIF in California between1951 and 1978. Amador Valley Joint Union High School Dist. v. State Bd. of Equali-zation, 22 Cal. 3d 208, 239, 583 P.2d 1281, 1296, 149 Cal. Rptr. 239, 254 (1978). Onlytwenty-seven of these California TIF programs began before 1966. RALPH ANDER-SON & ASSOCIATES, REDEVELOPMENT AND TAX INCREMENT FINANCING BY CITIESAND COUNTIES IN CALIFORNIA 3 (1976).

4. For literature on TIF, see generally BARTON-ASCHMAN ASSOCIATES, INC., TAXINCREMENT FINANCING OF URBAN DEVELOPMENT, (1973); COUNCIL OF STATE Gov-ERNMENT, TAX INCREMENT FINANCING OF COMMUNITY DEVELOPMENT, CSG RE-

SEARCH BRIEF (1977) [hereinafter CSG RESEARCH BRIEF]; RALPH ANDERSON &ASSOCIATES, supra note 3; Background of Tax Increment Financing in Calfornia, 13A.I.D.C. J. 55 (1978); Davidson, supra, note 1; Fisk, supra, note 1; Goldberg, TaxIncrement Financing Redevelopment Alternativefor American Cities, 2 Hous. & DEV.REP. (BNA) 221; Hegg, Tax Increment Financing of Urban Renewal-DevelopmentIncentive Without FederalAssistance, 2 REAL ESTATE L. J. 575 (1973); J. Hulkonen,Tax Increment Financing: A Total Community.4pproach to Economic Development, 9A.I.D.C. J. 49 (1974); Jefferson & Taggart, Tax Increments Criticized, 32 J. Hous. 5,

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areas. Under TIF, municipalities use the increased tax revenues gen-erated by urban redevelopment (the tax increment)6 to finance thepublic costs of that redevelopment.' To its proponents,8 TIF pro-

(1975); Lefco, When Governments Become Land Developers. Notes on the Public Sec-torExperience in the Netherlands and California, 51 S. CAL. L. R. 165 (1978); Mitchell,Tax Increment Financing for Redevelopment, 34 J. Hous. 226 (1977); Trimble, TaxIncrement Financingfor Redevelopment: California Experience is Good, 31 J. Hous.458 (1974); Trkla, Tax Increment Financing, CHICAGOLAND DEv., Nov. 1976, at 4; J.Schunoff, 4 Economic Evaluation of the Use of Tax Increment Financing of UrbanRenewal in Oregon, (Sept. 1974) (Unpublished Ph.D. dissertation in University ofOregon Library).

5. The definition of a "blighted area" within the meaning of an urban renewalstatute is a legislative question. For the Illinois definition of "blighted area", see note15 infra.

6. An example of a tax increment formula is:Tax Increment =

(Current Assessed Value) - (Original Assessed Value) CurrentX Taxes

Current Assessed Value

EXAMPLE(A) Original Assessed Value $1,210,455(B) Current Assessed Value $2,706,114(C) Current Taxes $ 955,339(D) Tax Increment = $2,706,114 - $1,210,455

$2,706,114 X $955,339

.553 x 955,339Amount of Annual TaxPayable to DevelopmentAgency $528,302

Hulkonen, supra, note 4, at 54. TIF is a hybrid between revenue bonds, based on theexpected returns from a given project, and special purpose bonds to meet a specificpublic objective. Note that the property owner still pays property taxes on the currentassessment but the entire "tax increment" is allocated to the city to meet redevelop-ment costs. Thus, TIF is distinguishable from tax abatement programs, which focuson relief for particular taxpayers or classes See Davidson, supra note 4, at 414.

7. Cities use TIF most effectively by issuing tax increment bonds in connectionwith the renewal project to raise funds to make immediate public improvements. Inaddition to directly increasing the tax increment, these improvements provide imme-diate incentives for private developers to invest in the area. Less effective uses of TIFbonds include direct use of tax increments without bonds or using TIF in connectionwith lease-revenue bonds. See generally CSG RESEARCH BuEF, supra note 4, at 6.

8. Proponents argue that:a) The TIF scheme lets redevelopment pay for itself. See note 9 infra.b) The ability of redevelopment agencies to enact TIF without voter ap-

proval minimizes disfunctional delay and allows cities necessary flexibility. See

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vides an innovative way to make redevelopment pay for itself.9 Bycontrast, its opponents'I consider TIF a "revenue shell game"I' that

Background of Tax Increment Financing in California, supra note 4, at 57. Butsee note 10 infra.

c) Since a typical program issues TIF bonds backed only by anticipated in-creased revenues, bondholders bear the risk of financing redevelopment. Lefco,supra note 4, at 245. But cf: CSG RESEARCH BRIEF, supra note 4, at 3. (Manycritics argue that in order to maintain a good credit rating, cities will have to paybondholders from general revenues if tax increment proves insufficient.)

d) Since the TIF system depends upon the private bond market for its capi-tal, the project will have to have an adequate chance of success in order to attractinvestors. CSG RESEARCH BRIEF, supra note 4, at 3.

e) Other taxing districts eventually receive tax benefits ad infinitum uponcompletion of the TIF program. Fists, supra note 4, at 10. But cf. Schunoff,supra note 4, at 53. (Slightly lower taxes after project completion occurred, butdue to the amounts and discount rate involved, these cannot compensate for ear-lier tax increases).

9. This argument assumes that major urban development activity usually createshigher property values in the developed area which, in turn, increases municipalproperty tax revenues. The basic tenet is that the tax increment would not occurwithout the redevelopment. See Hegg, supra note 4, at 580. Under TIF, both the cityand other taxing districts enjoy new employment, new capital investments, increasedtax base, and a general upgrading of the community. BACKGROUND OF TAX INCRE-MENT FINANCING IN CALIFORNIA, T.uprd note 4. Therefore, this increased revenueshould finance the public improvements that induced the private redevelopment ac-tivity. See Mitchell, supra note 4, at 227-228. Otherwise, the other taxing districtswould be enriched at the city's expense if they could keep the tax revenues obtainedthrough implementation of the TIF program. CSG RESEARCH BRIEF, supra note 4, at4. But see note 12, infra.

10. Opponents argue that:a) TIF potentially permits municipalities to capture tax revenues belonging

to other tax districts. See note 12 infra.b) The ability of redevelopment agencies to enact TIF without voter ap-

proval lessens citizen input into the financing process. Jefferson & Taggart, supranote 4, at 5. But see CSG RESEARCH BRIEF supra note 4, at 3 (elected officialswho represent the people of the municipality must approve TIF at severalstages).

c) TIF distorts the establishment of local government priorities; by bypassingthe traditional financing process, a TIF program does not have to compete withother programs and priorities for funds. Id. But see note 8 supra.

d) Cities must pay a higher interest rate on TIF bonds than other types ofbonds. CSG RESEARCH BRIEF, supra note 4, at 4.

e) Since a TIF redevelopment project depends upon its potential value increating a tax increment, low capital input projects such as housing suffer. Jeffer-son & Taggart, supra note 4, at 5. But see Swick, Tax Increments Supported, 32 J.Hous. 52 (1975) (other alternatives available for development of low capital in-put projects such as housing).

f) Freezing the tax base of redevelopment areas fails to account for increasedservices that other taxing districts provide to the area. Jefferson & Taggart, supra

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potentially permits municipalities to compulsorily capture tax reve-nues belonging to other taxing districts. 2 In People ex rel City ofCanton v. Crouch,13 the Illinois Supreme Court supported TIF byholding that municipalities constitutionally may require other taxingdistricts to deposit their portion of the tax increment into a specialmunicipal fund established for the purpose of paying redevelopmentcosts and obligations.

In Crouch, the plaintiff sought a writ of mandamus compelling thedefendant, Mayor of Canton, to execute tax increment bonds author-ized by city ordinance.14 The mayor refused to execute the bonds onthe ground that the Illinois TIF statute15 unconstitutionally permitted

note 4, at 5. But C. Swick, supra, at 52. (Rundown areas require more servicesthan redeveloped areas.)11. Jefferson & Taggart, supra note 4, at 5.12. Municipalities may enact TIF programs without the consent of other taxing

districts. The statutory requirements that these taxing districts receive notice and anopportunity for a hearing are so perfunctory that the TIF program is often an accom-plished fact before the taxing districts can react. RALPH ANDERSON & AssociATES,supra note 3, at 38. Many of these tax districts contain taxpayers who are ineligible tovote in municipal elections. For example, a county taxing district usually consists of acity and surrounding suburban townships. Suburban voters have no opportunity toinfluence municipal expenditures for redevelopment even though a portion of theirtax revenues fund such redevelopment. In California, for instance, these tax revenueswould normally be distributed to taxing districts: county, 24%; city, 22%; school dis-tricts, 48%; special districts, 6%. Trimble, supra note 4, at 458. See generally, Hegg,supra note 4, at 475-476.

Opponents of TIF dispute the assumption that redevelopment necessarily causesthe increase in the tax base. See Schunoff, supra note 4 at 51, (Most tax increments inOregon caused by non-TIF related factors.) By gerrymandering the boundaries ofredevelopment areas, municipalities can capture tax revenues that ordinarily wouldhave gone to other taxing districts. See generally, Davidson, supra note 1, at 440. SeeRALPH ANDERSON AND AssocIATEs, supra, note 3 at 39-42; BARTON-ASCHMAN As-

socIATEs, supra note 4, at 51-54; Regis v. City of Ballwin Park, 70 Cal. App. 3d 968,981-82, 139 Cal. Rptr. 196, 204-05 (1977). See also notes 24 & 49 and accompanyingtext infra.

13. 79 IIL 2d 356, 403 N.E.2d 242 (Ill. 1980).14. Id. at 364; 403 N.E.2d at 245.15. Real Property Tax Increment Allocation Act, Ill. Ann. Stat. ch. 24 §§ 11-74.4-

1 to 4-11 (Smith-Hurd 1980-81).The primary purpose of the Illinois statute is to eradicate and redevelop blighted or

nearly-blighted economically stagnant areas. Id. at § 11-74.4-2. The statute defines a"blighted area" as:

any improved or vacant area within the boundaries of a redevelopment projectarea located within the territorial limits of the municipality where, if improved,industrial, commercial and residential buildings or improvements, because of acombination of 5 or more of the following factors: age; dilapidation; obsoles-

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the sponsoring municipality to use the tax revenues of other taxingdistricts.' 6 The Illinois Supreme Court upheld the constitutionalityof the act and affirmed the issuance of the writ.17

Numerous state enabling statutes' 8 grant municipalities the powerto use TIF.19 Under a typical TIF statute, a municipality may enact

cence; deterioration; illegal use of individual structures; presence of stuctures be-low minimum code standards; excessive vacancies; overcrowding of structuresand community facilities; lack of ventilation, light or sanitary facilities; inade-quate utilities; excessive land coverage; deleterious land use or layout; deprecia-tion of physical maintenance; lack of community planning, is detrimental to thepublic safety, health, morals or welfare, or if vacant, the sound growth of thetaxing districts is impaired by, (1) a combination of 2 or more of the followingfactors: obsolete platting of the vacant land; diversity of ownership of such land;tax and special assessment delinquencies on such land; deterioration of structuresor site improvements in neighboring areas adjacent to the vacant land, or (2) thearea immediately prior to becoming vacant qualified as a blighted improvedarea.

Id. at § 11-74.4-3.The act provides that subsequent to a public hearing held pursuant to notice to

affected taxpayers and other taxing districts, a municipality may adopt TIF. The stat-ute further provides for the acquisition of property within the redevelopment area, thepreparation of the property for redevelopment, and the disposition of the property forprivate developers. Municipalities may use tax increment bonds to finance this rede-velopment activity. Id. at § 11-74.4-5, 4-9.

16. 79 11. 2d 346, 364, 403 N.E.2d 242, 245. The court acknowledged that theIllinois statute was a "novel proposition." "The unique part of tax increment alloca-tion financing is that the Act permits tax increments attributable to an increase in realpropery values to be paid from each taxing district which overlaps with the projectarea to the municipality." Id.

17. Id. at 363, 403 N.E.2d at 244.18. Twenty-six states have enacted TIF statutes. See: ALASKA STAT. § 18.55.695

(1981); ARiz. REV. STAT. ANN. § 36-1488.01 (Supp. 1981); CAL. HEALTH & SAFETYCODE § 33671 (Deering 1979); COLO. REv. STAT. ANN. § 31-25-801-822 (1977);CONN. GEN. STAT. § 8-134 (1981); FLA. STAT. ANN. § 163.385 (West 1972); ILL. REV.STAT. ch. 24 §§ 11-74. 4-1, 11-74. 4-11 (Smith-Hurd Supp. 1980); IND. CODE § 18-7-7-1 (1976); IOWA CODE ANN. § 403.19 (West 1976); KAN. STAT. ANN. § 17-4751(1974); KY. REv. STAT. ANN. § 99.750 (Baldwin 1981); ME. REV. STAT. ANN. tit. 30,§ 4853 (1978); MICH. CoMP. LAws ANN. § 5.3507(1) (1975); MINN. STAT. ANN.§472A.01-.10 (1977); MONT. CODE ANN. §7-15-42 (1981); NEV. REV. STAT.§ 279.674-.680 (1978); N.M. STAT. ANN. §§ 3-46-45 (1977); N.D. CENT. CODE § 40-58-20 (1973); OHIO Rv. CODE ANN. § 725.01 (Page Supp. 1980); OR. REv. STAT.§ 457.440 (1979), S.D. COMP. LAWS ANN. § 11-9-1 (Supp. 1981); TENN. CODE ANN.§ 13-20-205 (1980); TEx. REv. Civ. STAT. ANN. art 10691 (Vernon, 1973); UTAH CODEANN. § 11-15-149 (1972); WASH. REv. CODE ANN. 35.81.100 (West Supp. 1981); Wis.STAT. § 66.46 (Supp. 1981).

19. The constitutionality of many TIF programs depends upon the concept thatthe state delegates the power to use TIF to the municipality in order to accomplish thebroad state purpose of eliminating blight. See Metropolitan Dev. Agency v. Leech,

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an ordinance designating a redevelopment project area2° and author-izing a detailed redevelopment plan.2' The city then issues tax incre-ment bonds to finance public works2" that will attract privateinvestment in the project area.23 Ideally,24 this investment will raise

591 S.W.2d 427, 429 (Tenn. 1979) (claim that city was appropriating funds solely formunicipal purpose rejected since upgrading of blighted urban areas is not only a mu-nicipal purpose but also a concern of the county and state as a whole.); Tribe v. SaltLake City Corp., 540 P.2d 499, 502 (Utah, 1974) (TIF is constitutional because itmeets statewide object of eradicating blight even though TIF programs appeared tohave local operation.)

20. Redevelopment project areas, once relatively small, are increasing in size.While only 5% of the California projects established prior to 1972 exceeded 400 acres,31% of those established after 1972 were greater than 400 acres. By 1976, 52% ofCalifornia TIF projects exceeded 100 acres, 34% exceeded 200 acres and 19% ex-ceeded 400 acres. RALPH ANDERSON & AssocIATEs, supra note 3, at 31. As redevel-opment areas increase in size, long range municipal commitment of future taxrevenues becomes an important factor in TIF planning. Cities may find themselvesand other taxing districts locked into an inflexible course of disturbed priorities. Seegenerally CSG RESEARCH BRIEF, supra note 4, at 3-4.

21. The Illinois TIF statute's requirements for a redevelopment plan are represen-tative of most states. In Illinois, each redevelopment plan must include the following:estimated redevelopment project costs; the sources of funds to pay costs; the natureand terms of obligations to be issued; the most recent equalized assessed valuation ofthe project area; an estimate of assessed valuation of the land after redevelopment;and the general land uses to apply in the redevelopment area. ILL. ANN. STAT. ch. 24§ 11-74. (Smith-Hurd Supp. 1980-81) For factors a municipality should considerbefore implementing TIF, see generally Hulkonen, supra note 4, at 52-53.

22. Redevelopment activities funded by TIF have included: property acquisition;building demolition; the installation of streets, curbs, sidewalks, underground utilities,sewage and drainage facilities; and the construction of public works. Background ofTax Increment Financing in Calfornia, supra note 4, at 65. Examples of public worksinclude: city halls, courthouses, parking facilities, hospitals, schools, police stations,fire stations, libraries, parks, playgrounds, meeting facilities, malls, health centers,child care centers, and theatres. RALPH ANDERSON & AssOcIATES, Supra note 3, at34.

23. Hulkonen, supra note 4, at 50. Though most of the factors that influence busi-ness investment decisions are beyond the control of local governments, municipalitiescan influence some factors to attract private investment. These factors are: servicesand facilities, competitive factors, and environment in the immediate neighborhoodof business location. Services and facilities necessary to attract businesses include:transportation systems, sufficient water systems, industrial waste treatment andpower. Competitive factors are those local laws and regulations that make a city rela-tively attractive or unattractive compared to other cities or regions competing forbusiness and industrial development. These include: relative tax rates; laws gov-erning business operations; land cost; availability of financing at favorable rates; andzoning and land use regulations. Immediate environmental problems the city caninfluence to attract business include: high land costs, small land parcels, mixed landuses, parking and security. Id.

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the assessment value of the redevelopment area thus generating in-creased tax revenues (the tax increment) for all taxing districts con-taining the area.25 All such taxing districts must deposit the taxincrement into a special fund established to repay the obligations in-curred by the municipality.26 These taxing districts cannot influencethe municipality's original decision to incur the obligations or the

21scope of the redevelopment activities.Courts have examined the constitutionality of the TIF scheme28

24. In practice, this assumption has not always held true. Oregon and Californiawere among the first states to adopt TIF. An Oregon study disputes the view that TIFis "self liquidating." Detailed statistical analysis revealed that most increases in taxrevenue were unrelated and, in many instances, occurred prior to redevelopment ac-tivities. The primary conclusion of the study was that 'for tax increment projects inOregon, significant costs of the tax incrementproject are borne by the taxpayers of over-lapping jurisdictions through higher taxes." (emphasis original). Schunhoff, supranote 4, at 51-52.

A staff report of the California Senate Local Government Committee reinforces theOregon findings:

Under existing law, a project area can be designated which contains much pri-vate activity totally unrelated to redevelopment. . . .Yet the tremendous in-creased assessments will accrue to the redevelopment agency, and the taxingjurisdictions will not even be able to capture a cost of living increase on theproperty. It is technically possible under existing redevelopment law for anagency to go through the files of the city building department and pull out allbuilding permits granted on which construction has not begun and put the sub-ject project into a redevelopment project area in order to get the tax increment.

STAFF OF CALIFORNIA SENATE LOCAL GOVERNMENT COMMITTEE, REPORT ON TAXINCREMENT FINANCING OF REDEVELOPMENT, 6-7 (Dec. 5, 1975) cited in Regus v.Ballwin Park, 70 Cal. App. 3d 968, 981, 139 Cal. Rptr. 196, 205 (1977). Cf. BARTON-ASCHMAN AsSOCIATES, supra note 4, at 51-54. (City drew boundaries for specificpurpose of capturing forty-seven million dollars of tax revenue unrelated to imple-mentation of TIF programs.)

25. See generally Davidson, supra note 1, at 415; Hulkonen, supra note 1, at 53;Mitchell, supra note 4, at 227; Trimble, supra note 4, at 458.

26. In most states, when the bonds are fully repaid from tax increments, the taxingdistricts once again receive tax revenues based on the full assessed value of the rede-velopment area. See Davidson, supra note 1, at 407.

27. See note 12 supra.

28. Courts examining TIF include: People ex rel City of Canton v. Crouch, 79 Ill.2d 356, 403 N.E.2d 242 (1980) (Illinois TIF statute is constitutional); City of Minne-apolis v. Wurtelle, 291 N.W. 2d 386 (Minn. 1980) (Minneapolis TIF program metprocedural requirements); City of Sparks v. Best, 605 P.2d 638 (Nev. 1980) (NevadaTIF statute is constitutional); State of Kansas ex rel Schneider v. City of Topeka, 227Kan. 115, 605 P.2d 556 (1980) (Kansas TIF statute is constitutional); Sigma TauGamma v. City of Menomonie, 288 N.W.2d 85, 93 Wis. 2d 392 (1980) (WisconsinTIF statute is constitutional); Metropolitan Dev. Agency v. Leech, 591 S.W. 2d 427(Tenn. 1979) (Tennessee TIF statute is constitutional); Redevelopment Agency of

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under three different approaches. The majority of courts ignore po-tential problems of TIF abuse29 and uphold the constitutionality ofsuch statutes.30 By contrast, the Kentucky approach, recognizing po-tential abuse, views TIF as unconstitutional.*1 California adopts acompromise position, accepting TIF as constitutional but limitingabuse by scrutinizing the implementation of TIF programs.32

Under the majority approach, courts exhibit a great deference tothe findings of state legislatures33 and municipal governments. 34

City of San Bernadino v. County of San Bernadino, 21 Cal. 3d 255, 578 P.2d 133, 145Cal. Rptr. 886 (1978) (City may reduce base roll for properties acquired by redevelop-ment agency itself); R.E. Short Company v. City of Minneapolis, 269 N.W.2d 331(Minn. 1978) (Minnesota TIF statute is constitutional); Regus v. City of Baliwin Park,70 Cal. App. 3d 968, 139 Cal. Rptr. 196 (1977) (blight determination of TIF projectoverturned); Sweetwater Valley Civic Association v. National City, 18 Cal. 3d 270,555 P.2d 1099, 133 Cal. Rptr. 859 (1976) (blight determination of TIF project over-turned); Dilley v. City of Des Moines, 247 N.W.2d 187 (Iowa 1978) (implementationof TIF program upheld); Miller v. Covington Dev. Authority, 539 S.W.2d 1 (Ky.1976) (Kentucky TIF statute is unconstitutional); Richards v. City of Muscatine, 237N.W.2d 48 (Iowa 1975) (Iowa TIF statute is constitutional); Tribe v. Salt Lake CityCorp., 540 P.2d 499 (Utah 1974) (Utah TIF statute is constitutional); RedevelopmentAgency v. Cooper, 267 Cal. App. 2d 70, 72 Cal. Rptr. 557 (1968) (amended TIF areaassessed as if part of original plan); Redevelopment Agency v. Malaki, 216 Cal. App.2d 480, 31 Cal. Rptr. 92 (1963) (reduction of the base assessment roll when taxableproperties are converted to public use is permissible); Bunker Hill RedevelopmentProject v. Goldman, 61 Cal. 2d 21, 389 P.2d 538, 37 Cal. Rptr. 74 (1964) (local deter-mination that TIF project area was blighted was presumptively valid).

29. See notes 11-14 supra.30. See notes 33-50 and accompanying text infra.31. See notes 51-56 and accompanying text infra.32. See notes 57-73 and accompanying text infra.33. See Sigma Tau Gamma v. City of Menomonie, 93 Wis. 2d 392, 414, 288

N.W.2d 85, 95 (1980) (legislature's definition of blight entitled to deference and re-spect); Metropolitan Dev. Agency v. Leech, 591 S.W.2d 427, 429 (Tenn. 1979) (Legis-lature may use discretion to require expenditure of local funds for appropriatepurposes); Dilley v. City of Des Moines, 247 N.W.2d 187, 192 (Iowa 1978) (court doesnot ordinarily examine the motives of those who exercise legislative power unless it is"manifestly arbitrary, capricious or unreasonable").

34. See City of Sparks v. Best, 605 P.2d 638, 639 (Nev. 1980) (Once it has beendetermined that the designation of a particular project area is valid, the court shouldnot consider the taking or leaving of sound buildings within its periphery); R.E. ShortCompany v. City of Minneapolis, 269 N.W.2d 331, 341 (Minn. 1978) (trial court erredin scrutiny of city's decisions by substituting its opinion for that of city); Dilley v. Cityof Des Moines, 247 N.W.2d 187, 190 (Iowa 1978) (not for judicial branch of govern-ment to pass upon the wisdom of a local law enacted by a municipal council). Cf.Berman v. Parker, 348 U.S. 35 (1954) (not for the courts to oversee the choice of theboundary lines nor to sit in review on the size of a particular project area.) But seenotes 57-73 and accompanying text infra.

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These courts uphold TIF programs if they are "rationally related" tothe broad public purpose of urban renewal.3" Refusing to examinethe wisdom of the scheme, courts adopting the majority view willonly overturn "arbitrary and capricious" TIF statutes.3 6 Such a testenables virtually any TIF program to withstand due process,3 7 equalprotection,38 or uniformity of taxation 9 challenges.4"

35. See City of Sparks v. Best, 605 P.2d 638, 639 (Nev. 1980) (Nevada TIF statuteconstitutional because it is rationally related to the legitimate state purpose of theelimination of blighted areas); Sigma Tau Gamma v. City of Menomonie, 93 Wis. 2d392, 408-09, 288 N.W.2d 85, 92-93 (1980) (Wisconsin TIF statute constitutional be-cause it is used to accomplish state purpose of eliminating blight); Richards v. City ofMuscatine, 237 N.W.2d 48, 58 (Iowa 1975) (Iowa TIF statute constitutional because itrationally relates to valid public purpose of urban renewal.)

36. See Dilley v. City of Des Moines, 247 N.W.2d 187, 190 (Iowa 1978) (not forthe judicial branch of government to pass upon the wisdom of a local law enacted bya municipal council); R. E. Short Company v. City of Minneapolis, 269 N.W.2d 331(Minn. 1978) (even though testimony could very well support finding that develop-ment plan was unwise, the trial court erred in scrutinizing municipal decision); Rich-ard v. City of Muscatine, 237 N.W.2d 48, 58 (Iowa 1975) (even though individualsmight differ over wisdom of TIF, the court must limit itself to whether it lacks arational basis).

37. See City of Sparks v. Best, 605 P.2d 638, 639 (Nev. 1980) (substantive dueprocess not violated by inclusion of economically and aesthetically viable property);Metropolitan Dev. Agency v. Leech, 591 S.W.2d 427, 430 (Tenn. 1979) (TIF does notconstitute taking of property without consent or adequate compensation); Richards v.City of Muscatine, 237 N.W.2d 48, 61 (Iowa 1975) (TIF statute does not deprive tax-payers of substantive economic benefits without corresponding compensation); but cf.Card v. Community Dev. Agency, 61 Cal. App. 3d 570, 131 Cal. Rptr. 153 (1976)(amendment of TIF redevelopment plan void on substantive due process grounds).See generally Davidson, supra note 1, at 434-436.

38. See Metropolitan Dev. and Housing Agency v. Leech, 591 S.W.2d 427, 430(Tenn. 1979) (TIF does not violate equal protection clause just because owners of theredevelopment property pay proportionately less taxes for general county and munici-pal services); Richards v. City of Muscatine, 237 N.W.2d 48, 58 (Iowa 1975) (TIFclassification that allows developer to pay a proportionately smaller amount to gen-eral funds of local taxing districts than owners of other taxing districts pay has ra-tional basis); Tribe v. Salt Lake City Corp., 540 P.2d 499, 504 (Utah 1975) (benefits toprivate individuals incidental to public purpose of eliminating blight). See generallyDavidson, supra note 1, at 431-434.

39. See State ex rel Schneider v. City of Topeka, 605 P.2d 556, 561-62 (Kan. 1980)(TIF not violation of uniform taxation clause because affects only the distribution oftax revenues already collected); Sigma Tau Gamma v. City of Menomonie, 93 Wis.2d 392, 409-414, 288 N.W.2d 85, 93-95 (1980) (TIF not violation of uniform taxationbecause no taxpayer or group of taxpayers is singled out for preferential treatmenteither in form of exemption or tax credit); Metropolitan Dev. Agency v. Leech, 591S.W.2d 427, 430 (Tenn. 1979) (TIF not violation of uniform taxation clauses becauseit is mandated appropriation not a transfer of taxing power). See generally Davidson,supra note 1, at 431-434.

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Two Iowa decisions, Richard v. City of Muscatine4 and Dilley v.City of Des Moines,4 illustrate the majority approach. In Richards,"the Iowa Supreme Court recognized that nonresident taxpayers paida greater proportionate share of the general cost of government thandid resident taxpayers.'4 This discrepancy withstood constitutionalobjections45 since the tax scheme was rationally related to the legiti-mate government interest of letting urban renewal pay for itself. 6

One year later, Dilley47 upheld the constitutionality of using TIF tofinance redevelopment of an area in Des Moines, Iowa. 8 A city offi-

40. Litigants have challenged TIF on other grounds, including improper delega-tion of legislative power, improper lending of municipal credit and improper excessesover constitutional debt limitation. See generally Davidson, supra note 1, at 436-439.

41. 237 N.W.2d 48 (Iowa 1972).42. 347 N.W.2d 187 (Iowa 1978).43. 237 N.W.2d 48. Like most cases reviewing the constitutionality of TIF, ils-

cantine examined, and rejected, a wide variety of constitutional challenges. The IowaSupreme Court ruled that: the absence of a public notice and opportunity for a hear-ing before implementation of TIF did not violate procedural due process. Id. at 56;TIF did not constitute an improper delegation of legislative power. Id.; TIF did notviolate substantive due process. Id. at 57-59; TIF did not entail constitutional dis-crimination. Id. at 59-62; TIF did not constitute lending of the state's credit. Id. at62; The Iowa Supreme Court did rule that tax increment bonds constituted a debt andthus were subject to the state constitutional debt limitation. Id. at 62-66.

44. Id. at 57-58.45. The plaintiff argued that by reducing the amount of property which would

otherwise be taxable to meet the general expenses of the other taxing districts, theIowa TIF statute effectively increased the taxes of property owners in those districts.This, plaintiff contended, was a deprivation of property without due process of law.Id.

46. Id. The court conceded that the TIF statute may deprive taxpayers and af-fected taxing districts of property, but nevertheless ruled that the statute did not vio-late due process. The Court found:

Urban renewal itself serves a valid public purpose and relates to the general wel-fare [citation omitted]. The tax increment plan appears to be a feasible methodof financing such projects. It is more advantageous to the city than ordinarygeneral obligation bonds, since the plan places the direct burden on the urbanrenewal property. We cannot say that the tax division scheme in [Iowa TIF stat-ute] is without rational basis.

Id.47. 247 N.W.2d 187 (Iowa 1978).48. In July 1973, the Des Moines City Council adopted a resolution designating a

67 block area, including the heart of the business district, as a blighted area in need ofrehabilitation. The city council passed an ordinance authorizing TIF but it did notreceive voter approval in a referendum required by Iowa law. The city then usedother funds to pay for some of the redevelopment. Taxpayers brought action to stopcurrent redevelopment activities and for a declaratory judgment preventing the use of

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cial publicly acknowledged that the city drew the boundaries of theredevelopment area to capture tax revenues of other taxing districtsthat would have resulted without any redevelopment activity. 9 Never-theless, the Iowa Supreme Court found that the city had not acted inan arbitrary, capricious, or unreasonable manner. Therefore, thecourt refused to examine city council members' motives in designat-ing boundaries of the redevelopment area."

TIF in any future redevelopment of the area. The Iowa Supreme Court, ignoring anargument that the issue was moot, examined the constitutionality of the Des MoinesTIF program. Id. at 189.

49. Lewis V. Pond, the Des Moines Director of Community Development, partic-ipated in the planning of the tax increment proposal in Des Moines. BARTON-ASCHMAN ASSOCIATES INC., supra note 4, at 6. On September 25, 1973, Mr. Pondparticipated in a Conference on Tax Increment Financing of Urban DevelopmentPrograms held in Chicago, Illinois. The conference was sponsored by Barton-Aschman Associates, Inc. and co-sponsored by the Department of Development andPlanning of the City of Chicago, Illinois and the Department of Development ofRockford, Illinois. 1d. at title page.

Mr. Pond stated that the city did not draw the boundaries of the redevelopmentarea to only encompass areas of severe blight for two reasons. First, the city wantedto capture tax revenue that would have occurred without any redevelopment activity.Second, the city drew the boundaries in hopes of obtaining voter approval on therequired voter referendum. BARTON-ASCHMAN AssocIATEs, INC., supra note 4, at51.

Forty-seven million dollars in captured tax revenue wouldhave occurred without anyredevelopment activity. The proposed redevelopment area included two new towers,already being built in the major retail core of Des Moines, that would generate fortymillion dollars in tax revenues. An additional seven million dollars of tax revenuewould be captured because of the Iowa tax structure and the timing of the referen-dum. In addition to capturing forty-seven million dollars of tax revenue that wouldhave occurred even without redevelopment, the city hoped to capture nine millionfrom the construction of a new hotel and another seven or eight million from otherimprovements. Id.

The City of Des Moines had a problem convincing the Des Moines School Boardthat the proposed project was as much to their benefit as to the city's because:

... the fact was clear that $47 million of [the tax revenues] would be on the taxrolls anyway. We are using money that would go to other taxing bodies if thevaluation decline did not offset it and the studies did indicate that there would bea peaking of the valuation with the downtown area within a few years followedby a decline.

Id. at 54.50. 247 N.W.2d at 192. The Iowa Supreme Court rejected plaintiff's attack on the

council members' motives and plaintifi's allegations that an eighteen block tract wasincluded in the area for the purpose of securing a valuable area for the increment. Id.First, the court cited the well-settled rule that the court does not ordinarily examinethe motives of those exercising legislative power in a manner which is not "manifestlyarbitrary, capricious, or unreasonable." Id. Then, the court found that there wasevidence that the entire area was blighted. This evidence included a study that found

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In Miller v. Covington Development 4uthority, 51 the KentuckySupreme Court ignored the majority approach followed in Richardsand Dilley. The Kentucky legislature had enacted two companionstatutes, the Local Development Authority Act (LDAA)52 and theTax Increment Act.53 Miller declared both statutes unconstitutional.The Kentucky court held the LDAA unconstitutional on the groundthat the power to designate development boundaries was too impor-tant to delegate to local officials. 4 In reaching its decision, the courtnoted the inherent potential for local officials to abuse TIF by arbi-trarily defining the boundaries of redevelopment projects. 5 The

that 67% of buildings in the entire area had minor deficiencies, major deficiencies orwere substandard. Id. at 191-92. Additional evidence included testimony that publicutilities, sewers, traffic control and parking were inadequate. ld. at 192. The courtconcluded that the plaintiff had failed to prove that the city's action in designating the67 block area as blighted was arbitrary, capricious or unreasonable. Id.

The reasoning of the Dilley court erects a virtually insurmountable barrier to chal-lenges that a city improperly included a tract within an urban renewal area for thepurpose of capturing tax revenues rather than redevelopment. First, so long as thereis any evidence that the entire area is blighted, the court will not look at particulartracts or buildings. Id. at 191. Accord, Berman v. Parker, 348 U.S. 26, at 35 (1954);Sigma Tau Gamma v. City of Menomonie, 93 Wis. 2d 392, 288 N.W. 2d 85 (Wis.1980); City of Sparks v. Best, 605 P.2d 638, 639 (Nev. 1980). Second, the courts willnot sit in review of the particular size of the project nor oversee the choice of bound-ary line. Dilley v. City of Des Moines, 247 N.W.2d at 192. See, e.g., Berman v.Parker, 348 U.S. at 35 (1954). Third, municipal determinations of blight are pre-sumptively valid. See note 34 supra. But see notes 57-73 and accompanying textinfra. Fourth, courts will not examine motives of municipal officials until they act ina manner which is "manifestly arbitrary, capricious or unreasonable." Dilley v. Cityof Des Moines, 247 N.W.2d at 192 (Iowa 1976).

51. 539 S.W.2d I (Ky. 1976).52. Ky. Rav. STAT. AN. §§ 99.610-680 (Baldwin 1981). Essentially, this statute

grants municipalities the same powers that other state TIF statutes grant municipali-ties, with the exception of the power to use tax increment financing. The Act createsan independent agency consisting of the mayor as ex officio member and seven com-missioners appointed by the mayor, with the approval of the governing body of themunicipality. Id. at § 99.625. The commission has the power to establish a redevel-opment plan and fix the project boundaries. Id. at § 99.630.

53. Ky. Rav. STAT. ANN. §§ 99.750-770 (Baldwin 1981). This act grants munici-palities the right to use tax increment financing to pay for urban redevelopment.

54. 539 S.W.2d 1, 3-5.55. Id. at 3. The Kentucky court stated:The real thrust of the Act is toward economic development. What then is tocharacterize an area as "economically significant"? Indeed, is there any real es-tate, or any area within a city that is not "economically significant"? And if thereare certain areas of a city that can be classified as depressed and dying, and forthat reason subjected to radical cosmetic surgery, what is to prevent the electedrepresentative of that city either from determining its boundaries themselves or

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court also found that the Tax Increment Act violated a provision ofthe Kentucky constitution that Trohibited the expenditure of schoolfunds for non-school purposes.

Utilizing a compromise approach, California courts view TIF asconstitutional,57 but seek to prevent abuse by scrutinizing the imple-mentation of TIF programs.58 In California," as in most states, 60

local determinations of blight are presumptively valid. Nevertheless,two California cases, Sweetwater- Valley Civic Association v. NationalCity6

1 and Regus v. City of Ballwin ,62 have allowed TIF opponents torebut this presumption.63 Sweetwater rejected a municipal findingthat labeled a golf course blighted.' The California Supreme Courtdeclared that municipal determination of blight must satisfy two re-quirements. 5 First, the proposed redevelopment area must possess

from proscribing some tangible formulae or criteria by which it is to be done, andis there any practical reason why that responsibility should be shifted to anotherlayer of officialdom that is not directly responsible to the electorate?

Id. at 4.

56. Id. at 5.57. See e.g., In re Redevelopment Plan for Bunker Hill, 61 Cal. 2d 21, 389 P.2d

538, 37 Cal. Rptr. 74 (1964).

58. See notes 59-73 and accompanying text infra.59. See 61 Cal. 2d 21, 37-39, 389 P.2d 538, 549-50, 37 Cal. Rptr. 74, 85-86.

60. See note 34 supra.

61. 18 Cal. 3d 270, 555 P.2d 1099, 133 Cal. Rptr. 858 (1976).62. 70 Cal. App. 3d 968, 139 Cal. Rptr. 196 (1977).63. In addition to Sweetwater and Regus, other courts have begun to place the

burden of proving blight on the municipality. See Prudential Bldg. & Loan Assoc. v.Urban Renewal & Community Dev. Agency, 464 S.W.2d 629 (Ky. 1971) (presump-tive invalidity of an amendment to blighted area); Yonkers Community Dev. Agencyv. Morris, 37 N.Y.2d 478, 335 N.E.2d 327, 373 N.Y.S.2d 112, app. dismissed, 423 U.S.1010 (1975) (court must do more than "rubber stamp" the determination); Apostle v.City of Seattle, 70 Wash. 2d 59, 422 P.2d 289 (1966) (burden on city to show findingsthat area is in fact blighted).

64. The city had declared a 130 acre tract that contained a 103 acre golf course"blighted" and planned to build a shopping center on the site. Though part of thegolf course was subject to flooding, most of it was in constant use. Sweetwater ValleyCivic Ass'n v. National City, 18 Cal. 3d 270, 273-74, 555 P.2d 1099, 1100-01, 133 Cal.Rptr. 859, 860-61 (1976).

65. 18 Cal. 3d at 277, 555 P.2d at 1103, 133 Cal. Rptr. at 863. Sweetwater statedthat:

To allow redevelopment under CLR, the proposed area must be blighted. Afinding of blight requires (1) that the area suffer 'either social or economic liabil-ities, or both, requiring redevelopment in the interest of health, safety and gen-eral welfare' and (2) the existence of one of the characteristics of blight.

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at least one characteristic of blight." Second, the municipality mustshow that the area suffers "either social or economic liabilities orboth, requiring redevelopment in the interest of health, safety andgeneral welfare."67 The court rejected the TIF plan because the golfcourse did not present a liability to the community.68

Regus v. City of Ballwin Park69 applied this two-part test to invali-date a proposed issuance of TIF bonds. Regus overturned a localTIF plan7" because the municipality failed to find that the proposedproject possessed any specified characteristic of blight.7 In reachingits decision, the Regus court noted that the unrestricted use of rede-velopment power would have a strong impact upon taxpayers and

Id. at 273, 555 P.2d 1099, 1102, 133 Cal. Rptr. 859, 863 (1976). See CAL. HEALTH &SAFETY CODE §§ 33030-32 (Deering 1981).

66. See note 65 supra. Sweetwater noted that necessary characteristics of blightmay include "a growing or total lack of proper utilization of areas resulting in a stag-nant and unproductive condition of land potentially useful and valuable for contrib-uting to the public health, safety and welfare. CAL. HEALTH & SAFETY CODE§§ 33031-33034 (1973) quotedin 18 Cal. 3d at 274 n.3, 555 P.2d at 1101 n.3, 133 Cal.Rptr. at 861 n.3. Though the golf course was making a profit, the city found that theproperty could be more efficiently utilized as a shopping center site. Id.

67. Id. at 277, 555 P.2d 1099, 1103, 133 Cal. Rptr. 859, 863. The court ruled thatit is not sufficient to merely show that the area is not being put to its optimum use orthat the area is more valuable for other uses. "By requiring a showing of 'liabilities'plus a specified characteristic of blight, the Legislature made clear its intent that adetermination of blight be made-not on the basis of potential alternative use of theproposed area-but on the basis of the area's existing use." Id.

68. Id. at 279, 555 P.2d 1099, 1104, 133 Cal. Rptr. 858, 864 (1972). Since the golfcourse was marginally profitable and because of its open space nature, the courtfound that the course did not present a social or economic liability upon the city.

69. 70 Cal. App. 3d 968; 139 Cal. Rptr. 196 (1977).

70. The City of Ballwin drew its redevelopment plan to include two separate non-contiguous sites along the San Bernadino Freeway. One twenty-nine acre plot con-tained 51% vacant lots and most of the rest was older, fairly well maintained housingstock. The other plot, fifty-three acres, was the site of a new lumber facility and thefuture site of a United Parcel Service distribution facility. The assessed valuation ofthe lumber facility and UPS center, anticipated to produce tax revenues of $125,000annually, would not reach the tax rolls before the assessment freeze. Id. at 972-75,139 Cal. Rptr. 196, 198-99 (1977).

71. Id. at 979, 139 Cal. Rptr. 196, 207 (1977). The city's stated reasons for selec-tion of the project area were the following: improper utilization of area; irregularparcelization; low tax revenues; difficulty in assembling land; and difficulty in pro-moting desirable development. Id. These reasons, without a finding of blight, wereinsufficient justification to use TIF. Id. at 982, 139 Cal. Rptr. at 204-05.

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government entities.72 California has not extended this judicial will-ingness to review blight designation to other stages of the TIFprocess.73

In People ex rel City of Canton v. Crouch ,' Illinois followed themajority trend7

' by holding that a municipality utilizing TIF mayrequire other taxing districts to turn their portion of the tax incrementover to the municipality. 76 The Illinois legislature found that taxingdistricts would not obtain the benefits of an increased tax base with-out the use of TIF.77 Based upon this legislative finding, the Illinois

72, Id. at 211. The court noted two reasons for requiring a finding of blightbefore a city could exercise its TIF powers:

Under the law, blight must be found before redevelopment can be authorized;because, first, without evidence of blight there is no solid justification for compel-ling taxpayers in one section of the community, for example those in the county,the School District, and in Ballwin Park outside the Project area, to subsidize thecost of development of another section of the community by carrying a dispro-portionate share of the cost of local government. Second, unrestricted use ofredevelopment powers fosters speculative competition between municipalities intheir attempts to attract private enterprise, speculation which they can finance inpart with other people's money ....

In essence, tax revenues are used as subsidies to attract new business. Theimmediate gainers are the subsidized businesses. The immediate losers are thetaxpayers and government entities outside the project area, who are required topay the normal running expenses of government operation without the assistanceof new tax revenues from the project area.

Id. (footnotes omitted).73. See Redevelopment Agency of City of San Bernadino v. County of San

Bernadino, 21 Cal. 3d 255, 578 P.2d 133, 145 Cal. Rptr. 886 (1978) (City may reducebase roll for properties acquired by redevelopment agency itself); RedevelopmentAgency v. Cooper, 267 Cal. App. 2d 70, 72 Cal. Rptr. 557 (1968) (amended TIF areaassessed as if part of original plan); Redevelopment Agency v. Malaki, 216 Cal. App.2d 480, 31 Cal. Rptr. 92 (1963) (reduction of the base assessment roll when taxableproperties are converted to public use is permissible.)

74. 79 Ill. 2d 356, 403 N.E.2d 242 (1980).75. See notes 33-50 and accompanying text supra.76. Ill. 2d 356, 369-71, 403 N.E.2d 242, 248-49. The mayor contended that the

Illinois TIF statute violated constitutional guarantees of due process, equal protectionand uniformity of taxation. He also challenged TIF as an unconstitutional delegationof legislative authority, impairment of contracts, and separation of powers grounds.Id. at 369, 403 N.E.2d at 248. These contentions are based on the underlying argu-ment that the Illinois TIF statute is unconstitutional "because it permits tax revenueslevied and collected within one taxing district to be paid over to another taxing dis-trict for its use." Id. at 369, 403 N.E.2d at 248.

77. The Illinois TIF statute stated:It is found and declared that the use of incremental revenues derived from taxrates of various taxing districts in redevelopment project areas for the payment ofredevelopment project costs is of benefit to said taxing districts for the reasons

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Supreme Court ruled that TIF did not violate constitutional guaran-tees of due process, 78 equal protection,79 or uniformity of taxation.80

The court found that TIF classifications were neither arbitrary norcapricious since the special tax allocation fund consisted only of reve-nues raised by the implementation of TIF.8'

In upholding TIF, the Illinois Supreme Court specifically rejectedthe Miller approach." Crouch stated that the Kentucky court hadinvalidated TIF because it violated a state constitutional provisionthat prohibited the use of school taxes for non-school purposes.83

that taxing districts located in redevelopmentproject areas would not derive the ben-ets ofan increased assessment base without the benfts Oftax incrementfnancing,all surplus tax revenues are turned over to the taxing districts in redevelopmentproject areas and all said districts benefit from the removal of blighted conditionsand the eradication of conditions requires conservation measures.

ILL. AwN. STAT. h. 24 §§ 11-74.4-2 (Smith-Hurd Supp. 1980-81) (emphasis added).

78. The court found that the Illinois legislature determined that those tax reve-nues that are directly attributable to the increase in property values caused by theredevelopment activities should be paid to the municipalities from "the taxing dis-tricts which are favorably affected by the project." 79 111. 3d at 369, 403 N.E.2d at249. The court then cited the General Assembly finding that "were it not for theredevelopment project, the taxing districts would not receive such revenue." Id. Fi-nally, the court concluded that "it was reasonable for the increments to be used toretire the debt incurred by the redevelopment plan." Id. The plaintiff failed to provethat TIF was arbitrary or unreasonable, so the court rejected the due process chal-lenge to the act. Id. See note 37 supra.

79. Id. The court used the same reasoning to reject the equal protection chal-lenges to TIF. See note 78 supra. See also note 38 supra.

80. Id. The court, relying on the same reasoning it used to reject due process andequal protection challenges to TIF, also found TIF did not violate the uniformity oftaxation clause. The court stated that "[tihose taxpayers who will directly benefitfrom redevelopment will pay taxes to the municipality while those further removedphysically from the redevelopment area will have fewer, if any, tax revenues paidover to the municipality." Id. The plaintiff failed to prove that TIF was arbitrary orunreasonable so the court rejected the uniformity of taxation challenge to the act. Seenote 78 supra. See also note 39 supra.

Two justices dissented from the majority's holding. 79 1. 2d at 278-82, 403 N.E.2dat 253-54. Calling TIF a "compulsory diversion of taxes," id., the dissent stated"[there is no rational basis why an increase in revenue of a taxing district, regardlessof the cause for it, should be commandeered and given to another taxing district." .d.Such a diversion, according to the dissent, violates the uniformity of taxation clauseof the Illinois Constitution. Id.

81. Id. at 271, 403 N.E.2d at 249.

82. See notes 51-56 supra.

83. 79 Ill. 2d 356, 367-68, 403 N.E.2d 242, 246-47. Crouch said that the Millerdecision was based on a Kentucky Constitutional provision stating that "tax revenueslevied for the purpose of education shall be appropriated to the common schools, and

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The Crouch court, however, never acknowledged the Miller rulingthat Kentucky's TIF program was an unconstitutional delegation oflegislative power." The Illinois court resolved the delegation issueby emphasizing the adequacy of standards limiting municipaldiscretion."

While Crouch did not examine the question of improper determi-nation of blight, the court's rationale indicates an unwillingness tolimit TIF abuse by adopting the California approach.86 Both the Illi-nois statute87 and Crouch ss hinge upon the legislative finding that theincremental tax revenues are always attributable to the implementa-tion of TIF. This absolute finding prevents judicial scrutiny of spe-cific instances where non-TIF factors generate the tax revenues. 89

to no other purpose." Id. The Illinois court, noting that its constitution provided nosuch limitation, distinguished Miller on that basis. Id.

84. See notes 54-55 supra. The Illinois TIF statute was equivalent to both ofKentucky's companion statutes, not just the statute providing for the use of TIF. Byfocusing solely on the narrow Kentucky holding that the financing aspect of TIF wasunconstitutional, the Illinois court indicates an unwillingness to accept the broaderKentucky holding that granting municipal officials not directly responsible to theelectorate the power to designate and plan the redevelopment area is an unconstitu-tional delegation of power. The Kentucky statute may be facially distinguishablefrom the Illinois TIF statute in that Kentucky delegated the power to designate TIFboundaries to appointed officials not directly responsible to the electorate. Neverthe-less, while the Illinois officials may be directly responsible to a portion of the taxpay-ers affected, they are not even indirectly accountable to those taxpayers residingoutside the municipality.

85. 79 I11. 2d 356, 373, 403 N.E.2d 242, 250. The court found that the Illinois TIFstatute was not an unconstitutional delegation of power since it "sufficiently identifiesthe harm to be prevented (urban blight) and the general means available to the mu-nicipality (and the commission it may establish) to prevent the harm." Id.

86. The Illinois Supreme Court's reliance on the legislative finding that the taxincrement is always attributable to the implimentation of TIF suggests that it will notfollow the California approach. Both California cases invalidating TIF recognizethat the tax increment is not always attributable to the implementation of TIF. Cali-fornia acknowledges that municipalities abuse TIF by deliberately drawing bounda-ries of redevelopment projects for the purpose of capturing tax revenues caused bynon-TIF factors. Based on the perceived need to stem this abuse, California hasstarted to scrutinize the initial stage of the TIF process, the designation of blightedareas. Unless the Illinois courts modify their reliance on the legislative finding, theycannot even acknowledge TIF abuse, let alone prevent it.

87. ILL. ANN. STAT. ch. 24 § 11-74.4-2 (Smith-Hurd Supp. 1980-81).

88. 79 Ill. 2d 356, 370, 403 N.E.2d 242, 249.89. See note 86 supra. An argument could be made that Illinois is willing to

judicially scrutinize specific instances where non-TIF factors caused increased taxrevenues. The legislature found that "taxing districts located in redevelopment areaswould not derive benefits of an increased tax base without the benefits of tax incre-

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When coupled with the relatively lenient Illinois standard for blightdetermination,90 this finding grants municipalities virtually unfet-tered discretion to use-or abuse -TIF.

The Crouch decision represents the current trend of judicial defer-ence toward legislative and municipal findings. By refusing to limitTIF abuse through judicial review, the courts have consigned theburden of preventing TIF abuse to the state legislatures.91 If legisla-tures fail to limit municipal discretion in the use of redevelopmentpower, than TIF truly will become a "revenue shell game."

Thomas J. Burnside

ment financing." ILL. ANN. STAT. ch. 24 § 11-74.4-2. (Smith-Hurd Supp. 1980-81)(emphasis added). However, in upholding TIF, the court stated:

Within each taxing district, only those revenues which can reasonably befound tohave been raised by the implementation of the redevelopment plan can be depos-ited in the special tax allocation fund. Thus, only those taxing districts, andwithin each taxing district only that part of it which has enjoyed an increase inrevenue as a result of redevelopment will be required to turn over revenue to themunicpalty.

79 11. 2d 356, 371, 403 N.E.2d 242, 249. (emphasis added).This dictum in Crouch seems to soften the absolute legislative finding. Thus the

Illinois Supreme Court may overturn a local TIF program whose captive tax revenuesare not "a result of redevelopment."

The Illinois TIF statute also may permit judicial review of local TIF programs, Itstates: "No redevelopment plan shall be adopted by a municipality without findingsthat (i) the redevelopment project on the whole has not been subject to growth anddevelopment through investment by private enterprise and would not reasonably beanticipated to be developed without the adoption of the redevelopment plan." ILL.ANN. STAT. ch. 24 § 11-74.4-3(f) (Smith-Hurd Supp. 1980-81). If Illinois permittedjudicial review of the implementation of TIF programs at the local level, it wouldrepresent a realistic attempt to reconcile the need for creative solutions to the urbanblight problem with the danger of unjust diversion of tax revenues.

90. See e.g., City of Chicago v. R. Zwick Co., 27 111. 2d 128, 135, 188 N.E.2d 489,493, app. dismissed, Gonzula v. Chicago, 373 U.S. 542 (1963) (judicial notice must betaken that a slum as designated by city is detrimental to public health and welfare).

91. Some state legislatures have begun to limit TIF. See e.g., CAL. HEALTH &SAFETY CODE § 33320.2 (West Supp. 1981) (all non-contiguous portions of a projectarea must be either blighted or "necessary for effective redevelopment"), Wis. STAT.ANN. § 66.46(4)(c)(4)(a) (West Supp. 1980-81) (25% of TIF district must be in need ofsome form of reconditioning); WIs. STAT. ANN. § 66.46(4)(c)(4)(6) (West Supp. 1980-81) (city must find that substantially all real property in the district will be enhancedby the proposed improvements); MINN. STAT. ANN. § 472A (West Supp. 1981) (im-posed several substantive controls over a municipality's designation of TIF projects).See generaly, Davidson, supra note 1, at 439-442.

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